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FARO Announces Second Quarter Financial Results

LAKE MARY, Fla., Aug. 8, 2024 — (PRNewswire) — FARO® Technologies, Inc. (Nasdaq: FARO), a global leader in 4D digital reality solutions, today announced its financial results for the second quarter ended June 30, 2024.

"As I reflect on the completion of my first year at FARO, I am pleased with the execution of the first phase of our journey to drive operational excellence and we are pacing well ahead of our expectations," said Peter Lau, President & Chief Executive Officer. "By continuing to build a strong base of financial performance, marked by consistent EBITDA and free cash flow generation, we are investing in several multi-year value creation activities. Against the backdrop of a difficult macroeconomic environment, FARO delivered GAAP net loss of $0.5 million and $8.4 million of adjusted EBITDA, or 10.3% of revenue, concluding a first half of 2024 adjusted EBITDA that exceeded full year fiscal 2023 adjusted EBITDA. Looking forward, we are excited about the next phase in our journey, as we communicated in March, to deliver on the key organic growth plans which our operational improvements has enabled."

Second Quarter 2024 Financial Summary

* A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP financial measures is provided in the financial schedules portion at the end of this press release. An additional explanation of these measures is included below under the heading "Non-GAAP Financial Measures".

Outlook for the Third Quarter 2024

For the third quarter ending September 30, 2024, FARO currently expects:

Conference Call

The Company will host a conference call to discuss these results on Thursday, August 8, 2024, at 4:30 p.m. ET. Interested parties can access the conference call by dialing (800) 267-6316 (U.S.) or +1 (203) 518-9783 (International) and using the passcode FARO. A live webcast will be available in the Investor Relations section of FARO's website at: https://www.faro.com/en/About-Us/Investor-Relations/Financial-Events-and-Presentations

A replay webcast will be available in the Investor Relations section of the Company's web site approximately two hours after the conclusion of the call and will remain available for approximately 30 calendar days.

About FARO

For over 40 years, FARO has provided industry-leading technology solutions that enable customers to measure their world, and then use that data to make smarter decisions faster. FARO continues to be a pioneer in bridging the digital and physical worlds through data-driven reliable accuracy, precision, and immediacy. For more information, visit www.faro.com.

Non-GAAP Financial Measures

This press release contains information about our financial results that are not presented in accordance with U.S. generally accepted accounting principles ("GAAP"). These non-GAAP financial measures, including non-GAAP gross profit, non-GAAP gross margin, non-GAAP operating expenses, non-GAAP income (loss) from operations, non-GAAP net income (loss) and non-GAAP net income (loss) per share, exclude the impact of purchase accounting intangible amortization expense, stock-based compensation, restructuring and other charges, and other tax adjustments, and are provided to enhance investors' overall understanding of our historical operations and financial performance.

In addition, we present EBITDA, which is calculated as net income (loss) before interest (income) expense, net, income tax benefit (expense) and depreciation and amortization, and Adjusted EBITDA, which is calculated as EBITDA, excluding other (income) expense, net, stock-based compensation, and restructuring and other charges, as measures of our operating profitability. The most directly comparable GAAP measure to EBITDA and Adjusted EBITDA is net income (loss). We also present Adjusted EBITDA margin, which is calculated as Adjusted EBITDA as a percent of total sales.

We have included non-GAAP total sales on a constant currency basis. The most directly comparable GAAP measure to total sales on a constant currency basis is total sales. We believe constant currency information is useful in analyzing underlying trends in our business and the commercial performance of our products by eliminating the impact of highly volatile fluctuations in foreign currency markets and allows for period-to-period comparisons of our performance. For simplicity, we may elect to omit this information in future periods if we determine a lack of material impact. To present this information, current period performance for entities reporting in currencies other than U.S. dollars are converted to U.S. dollars at the exchange rate in effect during the last day of the prior comparable period.

Management believes that these non-GAAP financial measures provide investors with relevant period-to-period comparisons of our core operations using the same methodology that management employs in its review of the Company's operating results. These financial measures are not recognized terms under GAAP and should not be considered in isolation or as a substitute for a measure of financial performance prepared in accordance with GAAP.

These non-GAAP financial measures have limitations that should be considered before using these measures to evaluate a company's financial performance. These non-GAAP financial measures, as presented, may not be comparable to similarly titled measures of other companies due to varying methods of calculation. The financial statement tables that accompany this press release include a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures.

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that are subject to risks and uncertainties, such as statements about the outlook for the third quarter of 2024, demand for and customer acceptance of FARO's products, FARO's product development and product launches, FARO's growth, strategic and restructuring plans and initiatives, including but not limited to the additional restructuring charges expected to be incurred in connection with our restructuring and integration plans and the timing and amount of cost savings and other benefits expected to be realized from the restructuring and integration plans and other strategic initiatives, and FARO's growth potential and profitability. Statements that are not historical facts or that describe the Company's plans, objectives, projections, expectations, assumptions, strategies, or goals are forward-looking statements. In addition, words such as "is," "will" and similar expressions or discussions of FARO's plans or other intentions identify forward-looking statements. Forward-looking statements are not guarantees of future performance and are subject to various known and unknown risks, uncertainties, and other factors that may cause actual results, performances, or achievements to differ materially from future results, performances, or achievements expressed or implied by such forward-looking statements. Consequently, undue reliance should not be placed on these forward-looking statements.

Factors that could cause actual results to differ materially from what is expressed or forecasted in such forward-looking statements include, but are not limited to:

Forward-looking statements in this release represent the Company's judgment as of the date of this release. The Company undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events, or otherwise, unless otherwise required by law.

FARO TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)



Three Months Ended


Six Months Ended

(in thousands, except share and per share data)

June 30, 2024


June 30, 2023


June 30, 2024


June 30, 2023

Sales








Product

$            61,312


$            67,603


$          124,848


$          132,843

Service

20,773


20,608


41,481


40,335

Total sales

82,085


88,211


166,329


173,178

Cost of sales








Product

26,119


44,094


56,571


78,051

Service

11,177


10,794


21,662


22,088

Total cost of sales

37,296


54,888


78,233


100,139

Gross profit

44,789


33,323


88,096


73,039

Operating expenses








Selling, general and administrative

32,590


38,561


72,183


79,937

Research and development

9,833


11,662


18,857


24,380

Restructuring costs

616


8,450


616


12,688

Total operating expenses

43,039


58,673


91,656


117,005

Income (loss) from operations

1,750


(25,350)


(3,560)


(43,966)

Other (income) expense








Interest expense

761


1,003


1,592


1,838

Other income (expense), net

(43)


476


(18)


256

Income (loss) before income tax

1,032


(26,829)


(5,134)


(46,060)

Income tax expense

1,556


1,416


2,657


3,349

Net loss

$               (524)


$          (28,245)


$            (7,791)


$          (49,409)

Net loss per share - Basic

$              (0.03)


$              (1.49)


$              (0.41)


$              (2.62)

Net loss per share - Diluted

$              (0.03)


$              (1.49)


$              (0.41)


$              (2.62)

Weighted average shares - Basic

19,293,778


18,920,675


19,183,822


18,871,007

Weighted average shares - Diluted

19,293,778


18,920,675


19,183,822


18,871,007

 

FARO TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)


(in thousands, except share and per share data)

June 30,
2024


December 31,
2023

ASSETS




Current assets:




Cash and cash equivalents

$                 97,914


$                 76,787

Short-term investments


19,496

Accounts receivable, net

84,868


92,028

Inventories, net

34,409


34,529

Prepaid expenses and other current assets

30,468


38,768

Total current assets

247,659


261,608

Non-current assets:




Property, plant and equipment, net

18,412


21,181

Operating lease right-of-use assets

10,960


12,231

Goodwill

108,164


109,534

Intangible assets, net

46,135


47,891

Service and sales demonstration inventory, net

21,044


23,147

Deferred income tax assets, net

24,792


25,027

Other long-term assets

3,915


4,073

Total assets

$               481,081


$               504,692

LIABILITIES AND SHAREHOLDERS' EQUITY




Current liabilities:




Accounts payable

$                 27,867


$                 27,404

Accrued liabilities

25,373


29,930

Income taxes payable

3,227


5,699

Current portion of unearned service revenues

40,014


40,555

Customer deposits

5,208


4,251

Lease liabilities

4,645


5,434

Total current liabilities

106,334


113,273

Loan - 5.50% Convertible Senior Notes

69,983


72,760

Unearned service revenues - less current portion

19,984


20,256

Lease liabilities - less current portion

9,556


10,837

Deferred income tax liabilities

12,498


13,308

Income taxes payable - less current portion

6,114


5,629

Other long-term liabilities

16


23

Total liabilities

224,485


236,086

Commitments and contingencies




Shareholders' equity:




Common stock - par value $0.001, 50,000,000 shares authorized;
20,779,711 and 20,343,359 issued, respectively; 19,406,669 and 18,968,798
outstanding, respectively

20


20

Additional paid-in capital

351,849


346,277

Retained earnings

(17,580)


(9,789)

Accumulated other comprehensive loss

(47,038)


(37,247)

Common stock in treasury, at cost - 1,373,042 and 1,374,561 shares held,
respectively

(30,655)


(30,655)

Total shareholders' equity

256,596


268,606

Total liabilities and shareholders' equity

$               481,081


$               504,692

 

FARO TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)



Six Months Ended June 30,

(in thousands)

2024


2023

Cash flows from:




Operating activities:




Net loss

$            (7,791)


$          (49,409)

Adjustments to reconcile net loss to net cash used in operating activities:




Depreciation and amortization

7,788


7,925

Stock-based compensation

5,703


8,584

Inventory write-downs


8,132

Asset impairment charges


4,571

Deferred income tax (benefit) and other non-cash charges

(1,327)


(41)

Provision for excess and obsolete inventory

490


1,033

Amortization of debt discount and issuance costs

223


181

Loss on disposal of assets

994


130

Provisions for bad debts, net of recoveries

304


408

Change in operating assets and liabilities:




Decrease (Increase) in:




Accounts receivable

3,943


3,280

Inventories

(3,764)


1,587

Prepaid expenses and other current assets

7,771


3,105

(Decrease) Increase in:




Accounts payable and accrued liabilities

(3,087)


(277)

Income taxes payable

(1,853)


(263)

Customer deposits

1,126


(1,210)

Unearned service revenues

965


(750)

Other liabilities

(698)


(193)

Net cash provided by (used in) operating activities

10,787


(13,207)

Investing activities:




Purchases of property and equipment

(1,688)


(4,312)

Maturity of short-term investments

20,009


(20,024)

Cash paid for technology development, patents and licenses

(3,392)


(3,616)

Net cash provided by (used in) investing activities

14,929


(27,952)

Financing activities:




Payments on finance leases

(109)


(105)

Cash settlement of equity awards


(277)

Proceeds from issuance of 5.50% Convertible Senior Notes, due 2028, net of discount,
issuance cost and accrued interest


72,310

Repayment of 5.50% Convertible Senior Notes, due 2028

(2,685)


Net cash (used in) provided by financing activities

(2,794)


71,928

Effect of exchange rate changes on cash and cash equivalents

(1,795)


(353)

Increase in cash and cash equivalents

21,127


30,416

Cash and cash equivalents, beginning of period

76,787


37,812

Cash and cash equivalents, end of period

$            97,914


$            68,228

 

FARO TECHNOLOGIES, INC. AND SUBSIDIARIES

RECONCILIATION OF GAAP TO NON-GAAP

(UNAUDITED)



Three Months Ended June 30,


Six Months Ended June 30,

(dollars in thousands, except per share data)

2024


2023


2024


2023

Gross profit, as reported

$        44,789


$        33,323


$        88,096


$        73,039

Stock-based compensation (1)

374


419


704


691

Restructuring and other costs (2)


435


3


870

Non-GAAP adjustments to gross profit

374


854


707


1,561

Non-GAAP gross profit

$        45,163


$        34,177


$        88,803


$        74,600

Gross margin, as reported

54.6 %


37.8 %


53.0 %


42.2 %

Non-GAAP gross margin

55.0 %


38.7 %


53.4 %


43.1 %









Selling, general and administrative, as reported

$        32,590


$        38,561


$        72,183


$        79,937

Stock-based compensation (1)

(196)


(3,554)


(4,138)


(6,122)

Restructuring and other costs (2)

(745)


(359)


(3,453)


(1,154)

Purchase accounting intangible amortization

(341)


(688)


(884)


(1,361)

Non-GAAP selling, general and administrative

$        31,308


$        33,960


$        63,708


$        71,300









Research and development, as reported

$          9,833


$        11,662


$        18,857


$        24,380

Stock-based compensation (1)

(594)


(977)


(861)


(1,771)

Purchase accounting intangible amortization

(515)


(541)


(1,004)


(1,040)

Non-GAAP research and development

$          8,724


$        10,144


$        16,992


$        21,569









Operating expenses, as reported

$        43,039


$        58,673


$        91,656


$      117,005

Stock-based compensation (1)

(790)


(4,531)


(4,999)


(7,893)

Restructuring and other costs (2)

(1,361)


(8,809)


(4,069)


(13,842)

Purchase accounting intangible amortization

(856)


(1,229)


(1,888)


(2,401)

Non-GAAP adjustments to operating expenses

(3,007)


(14,569)


(10,956)


(24,136)

Non-GAAP operating expenses

$        40,032


$        44,104


$        80,700


$        92,869









Income (loss) from operations, as reported

$          1,750


$      (25,350)


$        (3,560)


$      (43,966)

Non-GAAP adjustments to gross profit

374


854


707


1,561

Non-GAAP adjustments to operating expenses

3,007


14,569


10,956


24,136

Non-GAAP income (loss) from operations

$          5,131


$        (9,927)


$          8,103


$      (18,269)









Net loss, as reported

$            (524)


$      (28,245)


$        (7,791)


$      (49,409)

Non-GAAP adjustments to gross profit

374


854


707


1,561

Non-GAAP adjustments to operating expenses

3,007


14,569


10,956


24,136

Income tax effect of non-GAAP adjustments (3)

(641)


(5,888)


(2,713)


(8,457)

Other tax adjustments (3)

1,146


7,959


3,894


14,342

Non-GAAP net income (loss)

$          3,362


$      (10,751)


$          5,053


$      (17,827)









Net loss per share - Diluted, as reported

$           (0.03)


$           (1.49)


$           (0.41)


$           (2.62)

Stock-based compensation (1)

0.06


0.26


0.30


0.46

Restructuring and other costs (2)

0.07


0.49


0.21


0.78

Purchase accounting intangible amortization

0.05


0.06


0.10


0.13

Income tax effect of non-GAAP adjustments (3)

(0.03)


(0.31)


(0.14)


(0.45)

Other tax adjustments (3)

0.06


0.42


0.20


0.76

Non-GAAP net income (loss) per share - Diluted

$             0.18


$           (0.57)


$             0.26


$           (0.94)


(1) We exclude stock-based compensation, which is non-cash, from the non-GAAP financial measures because the Company believes that such exclusion provides a better comparison of results of ongoing operations for current and future periods with such results from past periods.


(2) On February 14, 2020, our Board of Directors approved a global restructuring plan (the "Restructuring Plan"), which is intended to support our strategic plan in an effort to improve operating performance and ensure that we are appropriately structured and resourced to deliver increased and sustainable value to our shareholders and customers. On February 7, 2023, our Board of Directors approved an integration plan (the "Integration Plan"), which is intended to streamline and simplify operations, particularly around our recent acquisitions and the resulting redundant operations and offerings. The Restructuring and other costs primarily consist of severance and related benefits associated with the Restructuring Plan, Integration Plan, and executive transitions.


(3) The Income tax effect of non-GAAP adjustments is calculated by applying a statutory tax rate to Non-GAAP adjustments, including Stock-based compensation, Restructuring and other costs, non-recurring Inventory reserve charges, and Purchase accounting intangible amortization and fair value adjustments. In addition, when estimating our Non-GAAP income tax rate, we exclude the impact of items that impact our reported income tax rate that we do not believe are representative of our ongoing operating results, including the impact of valuation allowances we are currently recording in certain jurisdictions and certain discrete items such as adjustments to uncertain tax position reserves, as these items are difficult to predict and can impact our effective income tax rate. Specifically, Other tax adjustments during the six months ended June 30, 2024 were comprised of $3.6 million related to the impact of valuation allowance adjustments and $0.3 million related to other discrete items. During the three months ended June 30, 2024, Other tax adjustments were comprised of $0.8 million related to the impact of valuation allowance adjustments and $0.3 million related to other discrete items. In 2023, Other tax adjustments during the six months ended June 30, 2023 were comprised of $9.2 million related to the impact of valuation allowance adjustments and $5.3 million related to other items, including equity based compensation book to tax differences, non-GAAP adjustments impact on Global intangible low-taxed income and Prepaid tax on intercompany profit. During the three months ended June 30, 2023, Other tax adjustments were comprised of $4.6 million related to the impact of valuation allowance adjustments and $3.4 million related to other items, including equity based compensation book to tax differences, non-GAAP adjustments impact on Global intangible low-taxed income and Prepaid tax on intercompany profit.

 

FARO TECHNOLOGIES, INC. AND SUBSIDIARIES

RECONCILIATION OF NET INCOME (LOSS) TO EBITDA AND ADJUSTED EBITDA

(UNAUDITED)



Three Months Ended June 30,


Six Months Ended June 30,

(in thousands)

2024


2023


2024


2023

Net loss

$            (524)


$      (28,245)


$        (7,791)


$      (49,409)

Interest expense, net

761


1,003


1,592


1,838

Income tax expense

1,556


1,416


2,657


3,349

Depreciation and amortization

4,167


3,947


7,788


7,925

EBITDA

5,960


(21,879)


4,246


(36,297)

Other expense (income), net

(43)


476


(18)


256

Stock-based compensation

1,164


4,950


5,703


8,584

Restructuring and other costs (1)

1,361


9,244


4,072


14,712

Adjusted EBITDA

$          8,442


$        (7,209)


$        14,003


$      (12,745)

Adjusted EBITDA margin (2)

10.3 %


1.0 %


8.4 %


(2.7) %


(1) On February 14, 2020, our Board of Directors approved the Restructuring Plan, which is intended to support our strategic plan in an effort to improve operating performance and ensure that we are appropriately structured and resourced to deliver increased and sustainable value to our shareholders and customers. On February 7, 2023, our Board of Directors approved the Integration Plan, which is intended to streamline and simplify operations, particularly around our recent acquisitions and the resulting redundant operations and offerings. The Restructuring and other costs primarily consist of severance and related benefits associated with the Restructuring Plan, Integration Plan, and executive transitions.


(2) Calculated as Adjusted EBITDA as a percentage of total sales.

 

FARO TECHNOLOGIES, INC. AND SUBSIDIARIES

KEY SALES MEASURES

(UNAUDITED)



Three Months Ended June 30,


Six Months Ended June 30,

(in thousands)

2024


2023


2024


2023

Total sales to external customers as reported








Americas (1)

$          40,167


$          41,358


$          77,395


$          83,701

EMEA (1)

24,600


24,855


50,035


49,020

APAC (1)

17,318


21,998


38,899


40,457


$          82,085


$          88,211


$        166,329


$        173,178










Three Months Ended June 30,


Six Months Ended June 30,

(in thousands)

2024


2023


2024


2023

Total sales to external customers in constant currency (2)








Americas (1)

$          40,425


$          41,482


$          77,714


$          83,210

EMEA (1)

24,931


24,964


50,395


47,860

APAC (1)

17,783


21,446


39,552


38,544


$          83,139


$          87,892


$        167,661


$        169,614


(1) Regions represent North America and South America ("Americas"); Europe, the Middle East, and Africa ("EMEA"); and the Asia-Pacific ("APAC").


(2) We compare the change in the sales from one period to another period using constant currency disclosure. We present constant currency information to provide a framework for assessing how our underlying business performed excluding the effect of foreign currency rate fluctuations. To present this information, current and comparative prior period results for entities reporting in currencies other than United States dollars are converted into United States dollars at the exchange rate in effect during the last day of the prior comparable period, rather than the actual exchange rates in effect during the respective periods.

 


Three Months Ended June 30,


Six Months Ended June 30,

(in thousands)

2024


2023


2024


2023









Hardware

$        50,051


$        56,816


$      102,667


$      111,778

Software

11,262


10,786


22,182


21,065

Service

20,772


20,609


41,480


40,335

Total Sales

$        82,085


$        88,211


$      166,329


$      173,178









Hardware as a percentage of total sales

61.0 %


64.4 %


61.7 %


64.5 %

Software as a percentage of total sales

13.7 %


12.2 %


13.3 %


12.2 %

Service as a percentage of total sales

25.3 %


23.4 %


24.9 %


23.3 %









Total Recurring Revenue (3)

$        17,139


$        16,396


$        33,856


$        33,081

Recurring revenue as a percentage of total sales

20.9 %


18.6 %


20.4 %


19.1 %


(3) Recurring revenue is comprised of hardware service contracts, software maintenance contracts, and subscription based software applications.

 

FARO TECHNOLOGIES, INC. AND SUBSIDIARIES

FREE CASH FLOW RECONCILIATION

(UNAUDITED)



Three Months Ended June 30,


Six Months Ended June 30,

(in thousands)

2024


2023


2024


2023

Net cash provided by (used in) operating activities

$              4,212


$              5,137


$            10,787


$          (13,207)

Purchases of property and equipment

(365)


(2,624)


(1,688)


(4,312)

Cash paid for technology development, patents and licenses

(1,950)


(1,796)


(3,392)


(3,616)

Free Cash Flow

1,897


717


5,707


(21,135)

Restructuring and other cash payments (1)

2,354


3,192


2,757


3,988

Adjusted Free Cash Flow

$              4,251


$              3,909


$              8,464


$          (17,147)


(1) On February 7, 2023, our Board of Directors approved the Integration Plan, which is intended to streamline and simplify operations, particularly around our recent acquisitions and the resulting redundant operations and offerings. The Restructuring and other costs primarily consist of severance and related benefits associated with the Restructuring Plan, Integration Plan, and executive transitions.

 

FARO TECHNOLOGIES, INC. AND SUBSIDIARIES

RECONCILIATION OF OUTLOOK - GAAP TO NON-GAAP



Fiscal quarter ending September 30, 2024


Low


High

GAAP gross margin

53.0 %


54.5 %

Stock-based compensation

0.5 %


0.5 %

Non-GAAP gross margin

53.5 %


55.0 %




Fiscal quarter ending September 30, 2024

(in thousands)

Low


High

GAAP operating expenses

$45,000


$47,000

Stock-based compensation

(4,000)


(4,000)

Purchase accounting intangible amortization

(1,000)


(1,000)

Non-GAAP operating expenses

$40,000


$42,000




Fiscal quarter ending September 30, 2024


Low


High

GAAP diluted loss per share range

$(0.32)


$(0.12)

Stock-based compensation

0.19


0.19

Purchase accounting intangible amortization

0.05


0.05

Non-GAAP tax adjustments

0.07


0.07

Non-GAAP diluted loss per share

$(0.01)


$0.19

   

 

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SOURCE FARO Technologies

Contact:
Company Name: FARO Technologies
Investor Contacts, FARO Technologies, Inc., Matthew Horwath, Chief Financial Officer
Phone: +1 407-562-5005
Email Contact
Sapphire Investor Relations, LLC, Michael Funari or Erica Mannion
Phone: +1 617-542-6180
Email Contact
Financial data for FARO Technologies